Sri Lanka's Central Bank reduced its rates Thursday in the hope of increasing lending as the country targets 7.2 percent growth in 2014, an official said.

The Central Bank decided to reduce the Standing Lending Facility Rate of the Central Bank by 50 basis points to 8.00 percent with immediate effect, thereby compressing the Standing Rate Corridor to 150 basis points from the current 200 basis points. "It is expected that this compression will facilitate the reduction of the interest spread of banks over time, without affecting the deposit rates offered by banks to their customers," Central Bank Governor Ajith Nivaard Cabraal told reporters.

Going forward, economic growth is expected to accelerate further during the New Year, while inflation is projected to remain in mid-single digits, the Central Bank said in a statement.

"With expected improvement in Net Foreign Assets of the banking sector, continued fiscal consolidation and increased growth of credit to the private sector of around 16 percent, broad money is projected to expand by about 14 percent in 2014." "This will be sufficient to facilitate expected economic growth without fueling demand driven inflationary pressures. The external sector is also envisaged to improve further, with expected recovery in advanced economies and structural measures adopted domestically to strengthen the sector,"the statement added.

Cabraal was optimistic that the move would"encourage"banks and finance companies to lower their interest rates, especially in extending credit to the private sector. Endi

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